Unemployment is taking its toll on displaced workers' retirement accounts, new research finds.
The study by the nonprofit Transamerica Center for Retirement Studies revealed that current financial challenges have forced more than one-third of the unemployed to take money out of their retirement accounts.
The research shows 401(k) accounts have been hit particularly hard. More than 60 percent of the unemployed workers surveyed who participated in a 401(k) plan at their most recent employer have made withdrawals from the account, despite the penalties and taxes that apply.
The need to rely on retirement accounts has many unemployed workers feeling uneasy about their future. The research found that just 10 percent of displaced workers are very confident in their ability to retire comfortably.
“The Great Recession has led to a potentially devastating impact on the retirement outlook of American workers who have become unemployed or underemployed,” said Catherine Collinson, president of the Transamerica Center for Retirement Studies. “Many have raided retirement accounts to make ends meet — and it will be difficult for them to overcome these savings setbacks once they regain employment."
It's not just retirement accounts the unemployed are tapping into. The research found that more than half have dipped into savings accounts, nearly one-third have used credit cards and a quarter have turned to family and friends for loans.
The study does show that working part time while looking for full-time employment has numerous advantages. According to the research,underemployed workers are faring better than the unemployed, mostly through opportunities to earn income, gain access to employer health coverage and help alleviate the need to make withdrawals from retirement accounts.
Although total household savings in retirement accounts is low among all displaced workers, the estimated median retirement savings of the underemployed is more than triple that of the unemployed.
In addition, the study found that the underemployed are significantly more likely than the unemployed to consider making work-related changes, such as switching industries or professions, seeking additional education, or making lifestyle changes.
"The number of unemployed who are not considering proactive approaches to improve their financial outlook is alarming and suggests that many feel overwhelmed or discouraged," Collinson said. "An important first step toward finding employment is regaining confidence and realigning skills with prospective employers' needs."
The Transamerica Center for Retirement Studies, which is funded by contributions from Transamerica Life Insurance Co., offers these tips for displaced workers looking to improve their retirement outlook:
- Take on a part-time job while seeking full-time employment to help cover expenses and alleviate the need to take on debt or tap retirement savings.
- Continually update job skills to stay current with prospective employers' needs.
- Seek additional education and vocational training.
- Identify ways to cut costs and reduce living expenses.
- Consider retirement benefits as part of a total compensation package when evaluating job offers.
The study was based on surveys of 621 unemployed and underemployed workers.